India further eases defence offsets norms (Lead)

New Delhi, April 2 (IANS) India Monday further eased its defence offsets norms, saying the value of technology transferred under a deal could be written off against the obligation to reinvest 30 percent of all contracts over Rs.3 billion ($75 million). The offsets clause is expected to bring in investments of $30 billion over the next decade.

Under the Defence Procurement Procedure that was last amended in 2011, a firm winning a defence contract in India worth over Rs.3 billion will have to mandatorily plough back 30 percent of the deal amount in Indian defence, aerospace and homeland security industries.

This provision is a common practice by several nations which make defence purchases from foreign countries.

The revised provisions also make a distinction between equity and non-equity route, that is investment in “kind” made by the original equipment manufacturer (OEM) for discharge of offset obligations.

“Investment in kind in terms of TOT must cover all documentation, training and consultancy required for full TOT (civil infrastructure and equipment excluded),” the salient features of the new defence offset guidelines said.

The TOT, it said, should be provided without licence fee and there should be no restriction on domestic production, sale or export. The offset credit for TOT shall be 10 percent of the value of buy back by the OEM during the period of the offset contract, to the extent of value addition in India.

The guidelines also noted that the technology acquisition by Defence Research and Development Organisation (DRDO) for a list of specified technologies will be treated as an eligible offset with a multiplier up to three.

It has already been decided to allow the tier-I sub-vendors under the main procurement contract to discharge part of the offset obligations on behalf of the main vendor. However, the overall responsibility for discharge of the offset obligations shall rest solely on the main vendor.

Now, the agreement between the OEM, vendor and tier-I sub-vendor and the Indian offset partner will mandatorily be subject to Indian laws.

In the earlier policy, offset guidelines have to be discharged during the period co-terminus with the main procurement contract. The revised guidelines allow offset obligations to be discharged within a time frame that can extend beyond the period of main procurement contract by a maximum period of two years.

The overall cap on penalty will be 20 percent of the total offset obligations during the period of the main procurement contract. There will be no cap on penalty for failure to implement offset obligations during the period beyond the main procurement contract, which may extend to a maximum period of two years.

Under the existing guidelines, banked offset credits were valid for a period of two years. The period of validity has been increased to seven years under the revised guidelines.

In the discharge of offset obligations relating to direct export, foreign direct investment and technology transfer or investment in ‘kind’ in Indian enterprises through non-equity route, a multiplier of 1.50 will be permitted where micro, small, and medium enterprises (MSME) are the Indian offset partners. The monetary limits specified by the Indian government’s department of MSME shall be applicable for identification of the MSME.

“In exceptional cases, the competent authority may permit change in offset partners or offset components provided the value of offset obligations remains unchanged. This will provide greater flexibility in implementation,” the guidelines said.